Canada is on the verge of making a decision about what to do with its one-cent piece. The penny, many (including the Canadian Senate Finance Committee) believe, is obsolete. Would those in Canada even miss the one-cent piece? For inspiration, we Canadians might try looking to New Zealand and Australia. Canada seems poised to follow the lead of these countries, and abolish the penny.
Pennies are Obsolete
One of the main reasons that the penny should be removed from circulation in Canada is due to obsolescence. Who uses pennies anymore? One could even argue that cash is being used less and less — it’s not just the penny. The number of people using credit cards and debit cards is on the rise in Canada, along with the use of plastic around the world. If fewer people are using coins as part of their transactions, there is little reason to continue minting them.
Additionally, the Bank of Canada reports that the penny has lost 95% of its value. Not only is the use of pennies declining, but pennies are practically obsolete in terms of monetary value. You need so many of them now that you might as well be carrying larger denominations! Plus, carrying so many pennies (and other coins) can become annoying. One of the reasons plastic is so popular is convenience. Coins — especially pennies — are cumbersome. Plastic is easy.
On top of that, you can’t use pennies when shopping online. With online shopping surging in Canada, and other countries around the world, there is little reason to continue circulating a coin that a small percentage of the population uses. In Canada, only 37% of people use pennies, according to Desjardins.
New Zealand and Australia Seem to Be Just Fine
Some argue that economic chaos would ensue without the penny. However, this is not necessarily the case. Sweden seems to be getting along fine. New Zealand and Australia no longer have one-cent pieces or two-cent pieces. New Zealand no longer even has a nickel (although Canada is not anywhere near getting rid of the five-cent piece). And economic collapse has not happened. Transactions are rounded up or down, and it all seems to even out in the end.
Indeed, even in Canada, there are instances where rounding is used. Harmonized tax involves rounding to the nearest cent, and gas prices are expressed in fractions of a cent, meaning your total is rounded when you pay. We’re already accustomed to the idea of rounding, whether we realize it or not. The process of rounding to the nearest five cents wouldn’t be such a huge stretch.
Even the United States has eliminated useless coins in the past. The half-penny was eliminated in 1857 from U.S. circulation because it was such a small denomination that it wasn’t of much use. Plus, it cost more to make than its face value. The same thing has happened with the penny today. It costs more to mint a Canadian penny than it is worth, and can you honestly think of anything that costs only 1 cent? When it comes to it, you are likely to be hard-pressed to find something that costs less than 25 cents. The penny truly has outlived its usefulness.
What do you think? Should Canada eliminate the penny like New Zealand and Australia? Have you missed the penny and nickel in New Zealand?
Janet is a personal finance blogger with Credit Cards Canada, a web site that helps educate consumers about the best Canadian credit cards and responsible credit habits.